Minutes:
The Committee debated this matter following a seminar where presentations were given to members on the overall project (by Graham Cook), the internal business case (by David Clarke Associates), and the economic impact (by Focus Consultants).
The committee commenced with a presentation from Philip Evans, Senior Head of Tourism and Enterprise, on the wider tourism benefits of the project and the significant additional social benefits of the improved facilities for visitors and residents alike.
Alan Osborne, Deputy Chief Executive gave a brief overview regarding the financing of the project covering the following areas:
· Currently the Devonshire Park Estate required a minimum investment of £10m just for repairs and maintenance to stand still. This would not lead to any business improvement
· Following the development of the site as proposed, it was anticipated that there would be a net increase in contribution of between £850k and £1m per annum, the scheme being approximately half of the council’s forecast capital expenditure over the next 5 years
· As part of a cautious approach, increases in business rate retention and other potential ‘fringe’ benefits such as new homes bonus had not been included in assessing the business case
· The development would have an estimated 50yr lifecycle, with a 50yr capital repayment period being normal for a development of this nature.
· The Council holds assets of a much greater value than the amount of investment required some of which were potentially surplus – the Council was currently undergoing an ‘asset challenge’ process and, as a result, there could be the potential for additional capital receipts to be used to assist the financing of the Council’s overall capital financing requirement.
· A revenue allowance of £1m had already been set aside to compensate for inevitable revenue loss to the Council during the construction period of the project. The current medium term financial strategy provided a further £600k to support the councils capital financing requirement.
· The Public Works Loans Board was likely to be the most cost effective method of financing any additional borrowing.
Risks which could impact on cost were considered as:
· Project and client requirement changes to the specification
· Tenderer's concerns about project risk
· Market Risks associated with the demand/supply in the sector
Mitigations to these risks included:
· Potential for further development at the site in future
· Future changes to governance of the business on the site
· sale of the site or branding
· market testing and engagement with the supply side
The committee were advised that Capita would be reporting back on it’s review of the business case and affordability and financing options in late September 2015. A copy of the Capita report would be provided for Members.
Members were advised by the Deputy Chief Executive that, whilst this was clearly the Council’s largest planned capital scheme, it would not prevent the Council investing in other future capital schemes as part of the remaining capital programme. The Public Works Loans Board financing for the councils capital programme was available without condition and the Council was able to determine what it could afford and its ability to repay, with potential interest rates of between 3.4% and 3.8%.
Members were also advised that any loans could be ‘serviced’ from within the overall budget whilst the project was being completed, however, capital repayments could be deferred and capital receipts could be used to reduce initial borrowing such as to bridge the period between commencement of the project and full completion. At which point the full financial benefits of the development could start to be realised and resulting savings being diverted to the Capital Financing Budget.
In consideration of the merits of the overall project, and in particular the economic rationale, members noted, discussed and/or questioned consultants and officers on the following aspects drawn out from the presentations:
General points relating to the overall project
· There were opportunities to draw in additional partners to assist with future development for example the LTA and local University; the proposed branding exercise would make Eastbourne more attractive to a range of potential investors.
· The ‘Ambassador’ scheme would be adopted and implemented as an essential part of securing new conference business, particularly from Associations
· The Devonshire Park development would be seen as an anchor for the town and its impact on growth would be measured and recorded through regular bespoke surveys, and by monitoring visitor numbers
· The Council was working closely with some hoteliers to ensure there would be enough quality hotel stock to support the enhanced conference facilities. It was anticipated that this would drive investment and improvement across Eastbourne’s hotel stock as the benefits of the new facilities became apparent
· Methods of measuring social impact should be considered as part of the assessment of the overall benefit to Eastbourne.
Key points relating to the economic rationale of the project
· David Clarke Associates estimated a £814k annual improvement once the project was completed. In response to a view that this appeared to be a very disappointing return on a £42m capital expenditure even if an estimated £10m expenditure is necessary repairs and refurbishment, the consultant’s view was, although this was a relatively low rate of return for a project of this size, it was viable and, in their experience, other comparable projects with lower returns had been successful.
· The committee was advised by the consultants that a £10m investment in the upkeep of the existing buildings on the site could not be avoided due to the Council’s responsibilities for buildings with listed status. Such an investment would only enable the site to ‘stand still’ with its conference offer. This would not be sustainable in a declining market at this level. Thus, a key driver of the project is the transformation and elevation of the conference offer to generate significant improvements in conference income and associated catering revenues from this source.
· It was generally felt that the proposed scheme was of an optimum size and design matching the economic rationale. The Director of Tourism and Enterprise stated that, whilst, the ideal would have been for a slightly larger development, anything smaller would not be economically viable and anything significantly larger would be overreaching the business potential of the site. Thus, the development was fully supported by staff in the Council’s Tourism service delivery area.
· The Committee was advised that a primary focus on Association conferences was important given the nature of the conference offer provided by the development and its geographical location
· The consultants assured the committee that the location of the kitchen in relation to the Congress and the new Welcome building was suitable in respect of supporting the activities on the site
·
Focus Consultants estimated a £13.4m annual
increased spend from visitors to Devonshire Park in the Eastbourne
area. With conference attendees projected to grow from 7,500 to
34,150, they contribute £9m of this increase or £342
per head, a figure supported by both sets of consultants.
Cabinet were invited to take into account the overall content and findings set out above when considering this matter. However, no specific recommendations in respect of the overall project detail or its economic rationale had arisen from this review.